CRE Finance Sentiment Rises for First Time in Five Quarters

However, the index remains in negative territory given the continued uncertainty.

The CRE Finance Council’s quarterly sentiment index ticked up for the first time in five straight quarters in Q4 2022.

Overall sentiment from the survey, which tracks balance sheet and securitized lenders, loan and bond investors, private equity firms, debt funds, servicers, and rating agencies, increased to 68.6 last quarter. That’s an uptick of 12% from 61.4 in Q3, which marked the lowest level since the survey’s inception in 2017.

“While an improvement, the index remains in negative territory given the continued uncertainty surrounding inflation, rising interest rates, and a looming recession,” CRE Financial Council analysts say. “In addition, property valuation uncertainty will continue to challenge lenders and investors in the coming year.”

Responses to individual survey questions were flat to mildly improved, with the most significant improvement around investor demand for assets, borrower demand for financing, and liquidity in the CRE debt capital markets.

In the third quarter, just11% of respondents expected more demand by investors for CRE assets, while in Q4, 22% expect more demand, with 55% expecting it will be lower. And fifteen percent of the Board expected more borrowing demand for financing in 3Q, compared with 29% in Q4.

According to Raj Aidasani, CREFC’s Senior Director of Research, liquidity expectations also saw a positive shift in 4Q 2022 with an 18% increase from members anticipating better conditions ahead. In Q3, 62% expected a contraction in liquidity, while just 8% expected an improvement. But in Q4, 47% expect a contraction, with 18% anticipating better conditions.

“In addition, the rising rate environment continues to weigh heavily…with 84% expecting rates to negatively impact the industry in the current quarter, compared to 98% in the prior quarter,” Aidasani says.

The median response to the survey’s question to the CREFC Board of Governors about its projection for the Fed’s benchmark policy rate clocked in at 5%. Twenty-nine percent  expect the rate to fall between 4.75% and 5.00% and 24% project it will be greater than 5%.